George Osborne's budget is clearly the moment at which the post-election mood moves from superficial to serious – from sunshine to shadows. The coalition has put its cards on the table and is actually making changes to the macro and micro economies that will make discernible differences to real lives over an extended period.

This would be an important budget by any standards. But the large element of risk involved in Osborne's determination to eliminate the deficit by the time of the next general election – the biggest single surprise in the whole speech – raises the stakes still further.

The economic risk of putting deficit reduction first is matched by a political risk. Or rather by a political sleight of hand. The key task for the government is contradictory. It is to persuade the public that this is not an ideological cutting-for-cutting's-sake budget, while simultaneously reassuring some of its core Thatcherite supporters that this is exactly what it is. That problem was embodied in Osborne's uneasy compromise on capital gains tax.

The answer to the wider paradox is not yet clear, partly because we will not know the detail of the public spending cuts until the autumn and partly because these measures, like those of all budgets, will take time to play themselves out.

But it is clear that this is not the kind of budget that Osborne would have delivered if the Conservatives had won an overall majority on 6 May. The speech was woven through with concessions to the Liberal Democrats on subjects from infrastructure, regional policy, protecting the lower paid and preserving universal benefits – though there was not much on the environment.

Only time will tell whether these are essentially presentational concessions by the chancellor or whether they are substantive. Reasonable people should recognise that there is evidence on both sides of that argument. But it would be dogmatic and foolish to simply assume that the progressive sides of the package are mere window-dressing – even though that is what Labour will undoubtedly argue.

Although the budget marks the end of the government's honeymoon period, it does not necessarily follow that the coalition is suddenly doomed to become unpopular. The public has not made its mind up about that yet. Voters know that there is a deficit problem, even if too many on the left pretend that there is not.

As polls by both Ipsos-Mori and ICM in the last 48 hours have shown, the coalition has succeeded in shifting the public mood from earlier denial about spending cuts to cautious acceptance. That could implode, if the budget is deemed to be a "same old Tories" package. But if public opinion decides instead that the coalition has done a hard job reasonably well – and that we are indeed all in this together – then confidence in the Con-Lib government may consolidate.

This was not – or at least not only – a Conservative budget. It was horrible, of course. It will produce genuine Labour rage, of course. Many voters will feel betrayed, of course. But the audacity ran in more than one direction.

Without the coalition, without Cameron, we would have had something much less progressive than this, the distillation of a new political daring. This was the budget of a chancellor who believes that the fact government has failed is not the same as saying government will always fail.

It marks an absolute break with the New Labour years, but it is not in every regard a return to the Tory years which came before. For now, it may feel as if Thatcherism is back and that the chancellor's use of the word progressive was simply decoration to ease queasy Lib Dem stomachs. The test is whether it still feels like that in five years time.

This budget did not, as a Thatcherite one would have done, seek to divide the nation between winners and losers. It was a one-nation one, albeit produced in desperate circumstances. The opposition will surely benefit from an immediate sugar rush. There is much to energise Labour. That is one reason why Harriet Harman did well in response. She was able to represent real concern about the social and economic consequences of the measures. She could point to the fact that growth is predicted to be slightly lower next year because of them.

She does not need to defend the cuts and taxes that Labour would have had to bring in if it had won the election. She does not need to worry about the rapid escalation of the national debt. And if, in five years' time, the figures predicted by Osborne today have not come to pass, her successor of course will be able to make a strong, perhaps even winning case at the election.

The Lib Dems will certainly face the charge that they had been seduced by ideologues, in return for limited power. But do not assume that this budget will fail. Its programme is, for the moment, supported by the majority of voters. It represents the start of a necessary rebalancing of the state. It was the authentic product of a coalition whose rejection of social democracy does not extend to a rejection of all social democracy's intentions.

When a small Canadian cruise ship hit an iceberg in 2007, its 154 passengers were nonchalant. Initial reports suggested only a small hole was punched into the hull and so they refused to panic. Twenty hours later the ship "had sunk beneath the waves".

Today the public and particularly the Liberal Democrats appear nonchalant as George Osborne steers the ship of state straight towards the Austerity Iceberg. The foolhardy captain of this ship has recruited the most vulnerable sectors of society – children, mothers and the elderly – to act as his crew – while removing their life boats.

It's horrible to watch – for a number of reasons. Not only because it is gross cowardice to place the weak and vulnerable in the frontline in this way. But also because the "iceberg" towards which Osborne is steering Britain is not a lone one. European countries are hell-bent on synchronising austerity across the eurozone. Icebergs are popping up everywhere. And like the chancellor, all the OECD economies cutting back on public spending hope to compensate by increasing exports – into shrinking markets.

China and Japan are set to follow suit, and are aggressively increasing exports. Last month, the rise in China's exports was the highest in six years. One has to ask about the quality of advice the chancellor is getting from Mervyn King and Treasury mandarins, if he has been led to believe that Britain's terminally declining manufacturing sector can compete with China. That exports can help substitute for the collapse in public investment that will now follow the collapse in private investment – itself a function of Britain's malfunctioning banking system.

The huge increase in VAT to 20% will clobber the poor and hit the high street. But it will also hit the services sector on which the economy has becoming increasingly reliant: financial services, advertising, public relations, design and management consultancy.

Watch as the ballast of high-end private-sector jobs, as well as public-sector jobs, are thrown overboard just as the ship steers straight for the iceberg. These jobs will not be saved by the chancellor's concessions on corporation tax. We know, because of research undertaken by the IMF.

Those high priests of neoliberalism have found that corporate tax incentives are the least effective of all possible fiscal stimulus measures examined. According to their research, stimulus equivalent to 1% of GDP comprised of corporate tax cuts show up as an increase in GDP of just 0.5% of GDP over five years. By contrast, government investment yields the highest return, up to 4.5% of GDP over five years.

Their key conclusions are worth quoting more fully: "There is a robust finding across all models that fiscal policy can have sizeable output multipliers, particularly for spending and targeted transfers."

The authors' sole caveat is that the fiscal stimulus should last years, not decades. But if fiscal stimulus has not worked even over that timescale, then a "somewhat more comprehensive socialisation of investment" would be on the agenda.

Watch out as, in a year or two, taxpayers are once more called upon to bail out the sinking ship – and expected to "comprehensively socialise investment".

He claimed it was unavoidable, fair and progressive. In reality, it was nothing of the kind. George Osborne's budget measures up as almost the exact opposite on all three counts.

By deepening and accelerating spending and benefit cuts, he will certainly hold back recovery and boost unemployment, even on the forecasts he commissioned, and risks tipping the economy back into recession. That would increase the odds of a bond market crunch, not see it off.

By jacking up the regressive tax of VAT, which hits the poorest hardest, while bearing down on housing, disability and child benefits as he plans to slash corporation tax year after year, Osborne makes a nonsense of his boast that "we're all in this together". Even the lower-than-expected increase in capital gains tax to 28% is shot through with loopholes.

And by aiming to balance what he calls the "structural current deficit" in five years by an extra £40bn "fiscal tightening", while promising 25% cuts in unprotected budgets, at the same time as he hacks back investment allowances and lets bankers off with a levy that is dwarfed by their own bonus payouts, Osborne turns the concept of progress on its head.

For all the language of fairness and the gestures towards shared pain, it's already clear the balance of cuts and tax changes mean lower and middle income earners will feel the real pinch and those on benefits will take the greatest hit of all.

The Lib Dems will claim credit for changing the tone and boosting tax allowances. But on their two key pre-election commitments, to delay cuts and shift the balance from a spending squeeze to tax increases, they've been routed. No one can now be in any doubt where we're heading.

Today's budget cuts deep, but cuts fairly. Overall, the richest will take a substantially bigger cut to their incomes. Perhaps it is no coincidence that today's budget is published in the form of a "little red book". While not socialist, it certainly is a liberal budget. Unlike most fiscal consolidations around the world, the poorest are not going to be hit hardest. The bank tax, increased tax on flights and increased capital gains tax will all mean that the rich pay more. Overall, all measures considered, the richest tenth of the population will be losing 2% of their income, compared to 1% among the bottom half of earners. People in the top tenth of incomes lose £1,600 a year, compared to less than £200 among the poorest tenth. The fact that VAT carve-outs have been kept from food and children's clothing mitigates the effect of the VAT rise, while the increase in the personal allowances benefits those working on low incomes the most – increasing the total incomes of those just over the limit by about 2.5%. Likewise, while pay in the public sector is to be squeezed, only those earning more than £21,000 a year will have their pay frozen. As well as being fair between rich and poor, the budget is fair between generations. The last government left behind a situation where we would spend more on debt interest payments than running schools in England. The national debt had trebled, to over £100,000 per family of four. It isn't fair for us to bequeath such huge debts to the future. The budget is also fair between regions, and it has a plan for growth. Spending on infrastructure in areas where the private sector is weak will go ahead. The upgrade of the Tyne and Wear Metro, an extension of the Manchester Metrolink, the redevelopment of Birmingham New Street station and improvements to the rail lines to Sheffield and Liverpool and Leeds will all go ahead. This budget is very different to most cuts programmes around the world. The Conservatives are said to have been looking closely at Sweden's experience of pushing through "fair cuts" in the early 1990s. The Swedes' philosophy was that all must share the burden of getting debts under control, but the rich would do the most. This budget suggests the Tories have been paying close attention during their Swedish lessons.